Good afternoon. QQQs +31bps in a choppy one: up ~40bps early, down ~50bps by 11am as stocks sagged even with bonds rallying, then a sharp ramp around 1pm to +66bps at the highs, before giving away half. Software +1.6% leading as the SI-loser squeeze continued: ACN +15.8% on a clean print vs. very low expectations took IT services with it (CTSH +6%; EPAM +5.5%; INFY +5.5%; IBM +2.6%); agent-exposed apps also caught a bid (HUBS +6.1%; TEAM +5.9%). Semis +1.4% didn’t lag however: optical ripped intraday (COHR +10.9%; LITE +7.7%; CIEN +7.8%) on a Morgan Stanley note that any China transceiver curbs start at 3.2T, and EDA kept going after the SNPS analyst day (SNPS +12.8%; CDNS +6.2%). Mega caps were mixed: NVDA +1.1% on bullish NDR recaps, while GOOGL -1.7% round-tripped a +2.7% open on the Gemini 4 Argon pop as consensus was that results were heavily benchmarked and focus shifts back to search fears/lack of consumer agentic product, AVGO -2.1% lagged after agreeing to lend Anthropic up to $42B and AAPL -81bps underperformed as well.
Speaking of Anthropic, in the afternoon Bloomberg reported they are targeting a IPO before Thanksgiving, with marketing as soon as the week of 11/9 and continuing to meet with investors in October; its pre-IPO perp on Liquid briefly spiked above a $2.1T implied valuation before reversing:
In macro land, investors continued to focus on the long end of the curve. The 10Y spiked to ~5.34%, the highest since 2002, after the 10am ISM, where the headline was a touch light (54.5 vs. 55 expected) but prices paid jumped to 77.9 vs. 73, the highest since May, then yields reversed with no obvious headline, ~11bps off the high by mid-afternoon and led by the front end (the 2Y was down ~13bps at one point to 4.76%), to finish 10Y -6bps to ~5.24%. Vice Chair Jefferson said the Fed may need “more time” to decide on its next move, which some took as an effort to take some steam out of an October hike, which seemed to work as now only ~30% odds of a hike at the 10/28 meeting (down from 70%+ early this week). WTI +3% to ~$93 and Brent back above $100 after China reportedly suspended October fuel exports, with WSJ reporting a third carrier strike group headed to the Middle East. BTC +1.3% to ~$84.6K.
Ok, let’s get to the good stuff…
AI/SEMIS
Optical ripped intraday after opening roughly flat: COHR +10.9%; LITE +7.7%; CIEN +7.8%. The note making the rounds was Morgan Stanley’s after its strategists met officials in DC: potential FCC rules on optical transceivers would likely start at 3.2T modules made in China (800G/1.6T left alone), with a workaround if US content is above 65% of the BOM, which it framed as a win-win for LITE/COHR as lasers stay tight without them taking on lower-margin module assembly (note was getting passed around on X by 11:17am here and getting a lot of play here on a re-post by Serenity (he’s back!)). That chips at the COHR bear case on Chinese transceiver share gains (the medium-term worry), though Ted in TMTB Slack here pushed back that a 3.2T start barely touches the Chinese module makers near term, since 1.6T will be around for a while. Optical investor sentiment has been increasing steadily since a wave of positive mgmt meetings throughout September and the usual retail optical bulls on X and substack are becoming louder as of late as we head into OCP on Oct. 12th.